Chapter 31 & 32

Business Administration 391 with Zickuhr at University of Wisconsin - Milwaukee

About this deck

By: Alicia Bartosic
Textbook:

Business Law: Text and Cases - Legal, Ethical, Global, and Corporate Environment

Study Guide for Clarkson/Jentz/Cross/Miller's Business Law: Text and Cases, 11th

West's Business Law, Alternate Edition (with Online Legal Research Guide)
Created: 2011-04-21
Size: 31 flashcards
Views: 26

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Agency

The fiduciary relationship which results from the consent by one person to act for another

must have a common understanding of goals

Principal-agent relationship

Principal

Party who is being represented
Ex: an employer

Agent

Party acting on behalf of the principal
Ex: an employee

Independent contractor

Independent contractors are not employees because those who hire them have no control over the details of their work performance

may or may not involve principal-agency relationship
Ex: building contractors, subcontractors

Determining if a worker is an employee or an independent contractor

How much control does the employer exercise over the details of the work?

If a lot, worker is employee status

Is the worker engaged in an occupation distinct from that of the employer?

If so, independent contractor

Does the employer supply tools to the worker?

If so, employee status

Formation of the agency relationship

Agency relationships are normally consensual.

agency by agreement
agency by ratification
agency by estoppel
agency by operation of law

Agency by agreement

Most agency relationships based on an express or implied agreement

oral or written contract
implied in conduct

Agency by ratification

On occasion, a person who is in fact not an agent may make a contract on behalf of another (a principal)

if the principal approves or affirms that contract by word or action, an agency relationship is created by ratification

Agency by estoppel

When a principal causes a third person to believe that another person is the principal's agent, and the third person acts to his or her detriment in a reasonable reliance on that belief, the principal is "estopped to deny" (can't deny) the agency relationship.

Agency by operation of law

Social policy of promoting the general welfare or a legal duty to supply necessities to family members

ex: a wife charges necessities (clothes for kids) to husband's credit card, husband liable for payment because of duty to provide

Agency power coupled with an interest

May occur in emergency situations

if the agent is unable to contact the principal, courts will often grant this emergency power for agent to act on their behalf

Termination of the agency

lapse of time
purpose achieved
mutual agreement
termination by one party
termination by operation of law
bankruptcy

Lapse of time

An agency agreement usually specifies the time period which the agency relationship will exist

if so, the agency ends when that time expires
if no definite time stated, reasonable time assumed depending on the nature of the relationship

Purpose achieved

Agency automatically ends after the purpose of the relationship is completed

Mutual agreement

Parties can cancel a contract by mutually agreeing to terminate the contractual relationship at any time

Termination by one party

As a general rule, either party can terminate the agency because agency is a consensual relationship

although each party may have the power to terminate the contract, they may not have the right to do so--it may be a breach of contract

Termination by operation of law

Certain events will terminate agency authority automatically because their occurrence makes it impossible for the agent to perform or improbable that the principal would continue to want performance

death or incapacitation
impossibility
change of circumstance or property
bankruptcy

Notice required

When agency terminated:

it is the principal's duty to inform any third parties who know of the existence of the agency
actual authority ends
apparent authority continues until the third party receives notice

Principal's liability for contracts

actual authority
apparent authority
emergency power
ratification

Actual authority

Authority declared in clear terms

principal responsible for agency's contracts

Apparent authority

When the principal, by either word or action, causes a third party to reasonably believe that the agent has authority to act, even though the agent has no express or implied authority

if the third party changes his/her position in reliance on the principal's representations, principal may be estopped to deny agency

Emergency power

Agent has emergency power when unforeseen emergency demands action to the principal and the principal is not able to act or communicate

Ratification

Occurs when the principal accepts responsibility for an agent's unauthorized act

principal is bound to the agents act and treated as it it had been authorized from the start

Agents liability for contracts

agent acts for an undisclosed principal
agent acts for a partially disclosed principal
agent acts without authority
agent guarantees performance of the principal

Agent acts for an undisclosed principal

Undisclosed principal: a principal whose identity is unknown by the third party, and the third party has no knowledge that the agent is acting in an agency at the time contract is made

agent personally liable

Agent acts for a partially disclosed principal

Notification of 3rd party involvement but not specifics

removes some of liability from agent, split it with principal

Agent acts without authority

If an agent has no authority but contracts to a 3rd party, principal can't be held liable on the contract

agent liable for contract unless principal ratifies it

Agent guarantees performance of the principal

If agent has authority

can guarantee performance of the principal

If agent doesn't have authority

can't guarantee performance of the principal

CLICKER QUESTION: Carl hires Diane as agent to purchase office building but doesn't want seller to know he is buyer so he asks Diane to represent the purchase herself. Diane is

ANSWER: An undisclosed principal

Principals liability for torts of the agent

Misrepresentation
Negligence

Misrepresentation

Agent acting in a manner that misrepresents principal-agent relationship

principal not held liable

Negligence

4 elements: duty, breach, cause, harm

In case of independent contractors:

principal not held liable

Employees--scope of employment:

company held liable for negligent acts within scope of employment
in almost all cases, an employee is an agent (exception: stock room worker)